The Le Chatelier Principle of the Capital Market Equilibrium

Chin W. Yang (), Ken Hung, Matthew Brigida () and John A. Fox
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Chin W. Yang: Clarion University of Pennsylvania
Ken Hung: Division of International Banking and Finance Studies, Texas A&M International University
Matthew Brigida: SUNY Polytechnic Institute
John A. Fox: Clarion University of Pennsylvania

Chapter 49 in Encyclopedia of Finance, 2022, pp 1149-1155 from Springer

Abstract: Abstract This chapter purports to provide a theoretical underpinning for the problem of the Investment Company Act. The theory of the Le Chatelier principle is well known in thermodynamics: The system tends to adjust itself to a new equilibrium as far as possible. In capital market equilibrium, added constraints on portfolio investment in each stock can lead to inefficiency manifested in the right-shifting efficiency frontier. According to the empirical study, the potential loss can amount to millions of dollars coupled with a higher risk-free rate and greater transaction and information costs.

Keywords: Markowitz model; Efficient frontiers; With constraints; Without constraints; Le Chatelier principle; Thermodynamics; Capital market equilibrium; Diversified mutual funds; Quadratic programming; and Investment Company Act (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/978-3-030-91231-4_49

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